Explain the concept of multiplier effects

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Reference no: EM13190452

Which of the following changes to fiscal stimulus package of 2009 for $862 billion (under the bill called American Recovery and Reinvestment Act of 2009) would have a larger overall impact on AD?

A program of tax rebates, distributed uniformly across the population of those filing tax returns, amounting to $862 billion in total rebates.

Alternatively,

An $862 billion increase in federal government spending on repairs to highways and bridges, including other related infrastructure.

Hint: You may also use the AD-AS diagram as part of your analysis, but not required. However, explaining the answer with the concept of multiplier effects for these two alternative options is the right way to address this question.

Note: Note: The original bill was passed with its initial amount of $787 billion for 2 years recovery plan, which was subsequently increased to $862 billion. The $862 B was exhausted long before the end of 2011.

Reference no: EM13190452

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